Wednesday, January 05, 2011

We Are Gonna Blow More Bubbles!

Like the 1990s Internet bubble and the 2000s housing bubble! Yes, we are. No, we have not learned anything whatsoever and, yes, we have bailed out the culprits of the previous crisis so that they will be in a good position to initiate the next one.

Goldman Sachs is investing in Facebook:

Can Goldman Sachs, the profit-seeking missile of high finance, really make money by investing $450 million in Facebook, at a vertigo-inducing price that values the social-networking company at $50 billion?

On first blush, the answer would appear to be no. After all, in May 2009, the company was valued at $10 billion. Last August, Facebook was valued at $27 billion and now it's $50 billion — for a company with a reported $2 billion in revenue and negligible profits. If General Electric, with 2010 revenue of around $150 billion, traded at a similar multiple of revenue, it would be worth $3.75 trillion instead of $200 billion. Facebook is now considered to be worth more than Time Warner, DuPont and Goldman's rival Morgan Stanley.

Just last week, Facebook's shares were said to be trading on a private-market exchange at a valuation of $42.4 billion. Thanks to Goldman's imprimatur, Facebook's value increased 20 percent virtually overnight. Can Goldman really expect to squeeze more water from this stone?

Sadly, yes.

To understand why, we have to go to the heart of the many problems in the way the Wall Street cartel does business, despite the promised reforms of the Dodd-Frank law. With Goldman's investment in Facebook, we have a front-row seat to the process by which Wall Street creates and inflates financial bubbles.
Read the whole thing to learn about the next bubble, always remembering that it will burst, too, and that the ones with soap on their faces will not be the stockbrokers. They are doing astonishingly well, by the way.

In fact, they seem to be in power in this country.